KAMPALA, September 14, 2026 — Uganda’s banking industry recorded a sharp improvement in profitability and asset quality in 2025, with net profit after tax rising to Shs 2.17 trillion, even as banks increasingly shifted funds into government securities instead of lending to the private sector, according to a new industry report.
Bank profits and assets expand
The consolidated financial performance analysis by the Uganda Bankers’ Association [UBA] shows that net profit for Tier 1 banks rose from Shs 1.30 trillion in 2021 to Shs 2.17 trillion in 2025, representing compound annual growth of about 13.6 percent.
Total industry income also increased from Shs 5.18 trillion to Shs 8.26 trillion over the same period, while total assets expanded from Shs 41.4 trillion to Shs 61.7 trillion.
The report, covering 23 commercial banks and eight Tier 2 and 3 financial institutions, attributes the improved profitability partly to stronger income growth, lower loan-impairment provisions and improved operational efficiency.
Government borrowing crowds out private credit
But the report warns that the growing exposure of banks to government securities could constrain private-sector credit and deepen the country’s sovereign-bank nexus.
Government securities and other investments increased from an estimated 26 percent of banks’ total assets in 2021 to about 31 percent in 2025, while net loans and advances grew at a slower compound annual rate of 8.3 percent.
Customer deposits, meanwhile, grew by about 10.2 percent annually, indicating that deposits are accumulating faster than banks are converting them into loans.
Banks become more liquid
The trend has continued into 2026. Bank of Uganda data cited in the report shows that the ratio of total loans to assets across licensed deposit-taking institutions fell from 41.2 percent in March 2024 to 37.3 percent in March 2026, while liquid assets increased from 30.7 percent to 37.9 percent of total assets.
The International Monetary Fund estimates that government securities accounted for about 30.4 percent of banking-sector assets by March 2025, putting Uganda fourth among Sub-Saharan African countries on this measure of sovereign exposure.
The IMF has warned that the growing concentration of bank assets in government debt could contribute to higher interest rates and crowd out private-sector borrowing, although it found the banking sector sufficiently capitalised to withstand adverse interest-rate shocks.
The UBA report says the development must also be viewed against rising government financing requirements.
Uganda’s fiscal deficit is projected to have reached 6.9 percent of GDP in financial year 2025/26, while debt-service costs have risen to more than a third of government revenue, increasing the Government’s reliance on domestic borrowing.
Bad loans fall sharply
The sector’s improved asset quality provides some relief.
The Tier 1 banking industry’s non-performing loan ratio fell from 7.0 percent in 2024 to 3.4 percent in 2025, while bad-debt write-offs dropped from a peak of Shs 683.7 billion in 2024 to Shs 351.8 billion in 2025.
The improvement continued into 2026, with Bank of Uganda data showing the industry-wide NPL ratio falling to 3.01 percent in March 2026.
Profitability and efficiency strengthen
Profitability also strengthened further. By March 2026, return on equity had risen to 20.71 percent, while return on assets reached 3.88 percent. The cost-to-income ratio also improved to 66.28 percent.
Capital buffers remain strong. Total qualifying capital to risk-weighted assets stood at 25.7 percent in 2025, well above the regulatory minimum, according to the UBA analysis.
Large banks dominate the sector
However, the report identifies significant differences between large and smaller institutions.
The five largest banks accounted for about 55.5 percent of industry assets, while the 10 largest controlled approximately 79.5 percent. Despite this concentration, the sector’s Herfindahl-Hirschman Index was about 890, below the 1,500 threshold commonly used to classify a market as concentrated.
Smaller institutions face cost pressures
The smaller Tier 2 and 3 institutions face greater cost pressures. Their cost-to-income ratio stood at approximately 93.2 percent in 2025, compared with 66.9 percent for Tier 1 banks.
Their combined assets nevertheless increased from Shs1.25 trillion in 2022 to Shs1.89 trillion in 2025.
The report also raises concerns about their funding structure, noting that their loan-to-deposit ratio has remained above 100 percent, meaning that part of their lending is funded through borrowings and other non-deposit sources.
Digital finance expands rapidly
Meanwhile, digital financial services are rapidly changing the sector.
Transaction values on the shared agent banking platform increased by 76.1 percent, from Shs16.7 trillion in 2024 to Shs 29.4 trillion in 2025, while the number of agents rose from 15,288 to 22,793.
Mobile-money-based digital lending has also expanded, with approximately Shs 3.5 trillion disbursed through more than 150 million lending transactions in the year to June 2025.
The report warns, however, that increased digitalisation is bringing new risks, particularly cybercrime and electronic fraud, while banks face growing competition from fintechs and mobile-network-based lenders.
Banks expect tighter credit conditions
Looking ahead, the banking industry faces a more cautious credit environment.
Bank of Uganda’s latest lending survey indicates that banks expect to tighten credit standards for enterprises while continuing to ease lending standards for households.
Banks also expect default rates to rise amid higher fuel and input costs, delayed salary payments, job losses and geopolitical uncertainty.
UBA calls for fiscal reforms
The UBA report recommends fiscal consolidation to reduce government dependence on domestic borrowing and encourage banks to gradually rebalance their portfolios towards private-sector lending.
It also calls for reforms to credit guarantees and loan-loss provisioning, faster commercial dispute resolution, deeper credit infrastructure and completion of Uganda’s long-delayed national payments switch.
Strong banks, but private-sector lending remains a challenge
Despite the risks, the report concludes that the banking industry enters the second half of the decade with stronger capital, improved asset quality and higher profitability.
The challenge, it says, is to ensure that stronger banking balance sheets translate into more credit for businesses, agriculture and other productive sectors, rather than increasingly financing government expenditure.
https://thecooperator.news/9th-annual-bankers-conference-set-for-september-18-in-kampala/
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